Plans for a £34 billion high speed rail line linking Birmingham with London, Manchester and Leeds have been thrown into turmoil after the official public spending watchdog concluded the HS2 business case does not make sense.
The National Audit Office said it was not convinced that the HS2 line, would “rebalance the economy” or create hundreds of thousands of jobs – two of the key claims used by the Government to justify the price tag.
It also expressed concern about the ability of the Department for Transport to even manage the project successfully.
The warning, from the body which scrutinises public spending on behalf of Parliament, will be seized on by opponents of the scheme, who include a number of MPs across the West Midlands.
But it was rejected by Transport Secretary Patrick McLoughlin, who said the analysis was “out of date”.
The Transport Secretary said: “The case for HS2 is clear. Without it the key rail routes connecting London, the Midlands and the North will be overwhelmed.”
Most Birmingham MPs, Birmingham City Council and local transport authority Centro are firmly behind HS2, arguing it will create 22,000 permanent jobs in the region.
And the Government has attempted to put an end to debate about whether the line should be built, by announcing not one but two Bills in the Queens Speech designed to make it clear that the decision has been made and the line is happening.
But the National Audit Office (NAO) review raises serious questions about the rationale behind the scheme – and is expected to lead to a fresh inquiry by MPs.
Margaret Hodge, Chair of the Committee of Public Accounts which is to hold the Commons inquiry, said: “The department has produced a business case that is clearly not up to scratch.”
She added: “There is virtually no evidence in this business case to support claims that HS2 will deliver regional economic growth, one of the key aims and justifications for this project.
"We have been told that it will deliver around 100,000 new jobs but there is no evidence that all these jobs would not have been created anyway.”
The NAO report expresses strong doubts about the Department for Transport’s argument for building the rail line, which focuses largely on the economic benefits.
It said: “It is not clear how High Speed 2 will deliver the Department’s strategic objective of delivering and rebalancing economic growth.”
The report continued: “The department believes that high?speed rail will generate economic growth by creating jobs and stimulating regeneration around stations.
“HS2 Limited estimates that the line will support 100,000 jobs. This figure comprises temporary construction jobs, permanent operation and maintenance jobs, and an estimate of the number of jobs supported in the areas around the proposed station locations.”
But it added: “The analysis does not estimate how many of these jobs are additional and how many would have been created without investment in a high?speed line.
“The business case provides little supporting evidence to prove that a high?speed line will help to rebalance the economy by supporting regional growth.”
The case for HS2 depends partly on the assumption that business travellers will be more productive if journeys are shorter. But the data used by the Department for Transport to calculate the economic impact of shorter journey times is out of date, the NAO warned.
The report said: “To calculate benefits for business travellers, the largest estimated benefit, the department is using data which is over ten years old.”
And the Department for Transport had calculated predicted passenger numbers on HS2 trains on the assumption that fares would be roughly in line with existing rail fares – when they are likely to be much higher, as they already are on “High Speed 1”, the existing high speed line running from London to the Channel Tunnel in Kent.
The report added: “HS2 Limited has not yet analysed the effect of premium pricing on forecast passenger demand, revenues and the benefit–cost ratio. To forecast passenger demand, HS2 Limited uses the same average fares for high-speed and conventional rail in its models, although premium fares are charged on High Speed 1.”
The National Audit Office also said it had doubts about whether the Department for Transport was capable of managing the project, following the botched contest to award a franchise for the West Coast Main Line.
This contest had to be scrapped when it emerged that one of the bidders, Virgin Trains, had not been treated fairly. As a result, the department is going through major changes designed to ensure the errors cannot be repeated.
At the same time, the Department is overseeing a range of rail projects such as Thameslink and Crossrail in the south east, as well as a review of airports.
The report said: “We are concerned about the department’s capacity to undertake this programme to a challenging timetable alongside its other business and having experienced considerable organisational change.
“The Department is responsible for a number of significant programmes and initiatives including the Thameslink, Crossrail, Intercity Express and restarted rail franchising programmes; reforms to how it delivers motoring services; and a review of aviation policy.
“The Department restructured in 2010 and is undergoing further organisational change in response to the cancellation of the InterCity West Coast franchise competition. There has been considerable turnover in departmental senior positions in the past two years.”
But Transport Secretary Patrick McLoughlin rejected the findings, saying: “I welcome any examination of the HS2 programme, but I do not accept the NAO’s core conclusion.
“This is because it depends too much on out of date analysis and does not give due weight to the good progress that has been made since last year.
“This includes the appointment of an expert management team and the announcement of detailed plans for the line north of Birmingham.
“The case for HS2 is clear. Without it the key rail routes connecting London, the Midlands and the North will be overwhelmed. HS2 will provide the capacity needed in a way that will generate hundreds of thousands of jobs and billions of pounds worth of economic benefits.”
He added: “Economic modelling is just the start of the story – if we only relied on modelling we would not have built the M1, parts of the M25 or the Jubilee line extension to Canary Wharf.
“We are not building HS2 simply because the computer says “Yes”. We are building it because it is the right thing to do to make Britain a stronger and more prosperous place.”
HS2 is to include two new stations in the Midlands, one in central Birmingham and one near Birmingham Airport. Construction of Phase 1, linking London and Birmingham, is due start in 2017 and the line will open in 2026, while construction of Phase 2, with lines to Leeds and Manchester, is to start in the mid-2020s, with the lines opening in 2032-3.
Midland Transport leader Geoff Inskip said building HS2 was essential to meet booming demand on UK railways and bring jobs and investment to the West Midlands.
Mr Inskip, chief executive of regional transport authority Centro, said: “We are running out of rail capacity and that is why HS2 is so important to our economy. High speed rail will bring fast, direct services connecting eight of our ten largest cities, but it will also release capacity for more services on our increasingly busy existing lines.”
He said research revealed the first phase of HS2 alone would deliver 22,000 jobs and £1.5 billion per year to the West Midlands.